Deniz 
After the Tron DAO Reserve removed about $750 million worth of bitcoin backing the USDD stablecoin on Wednesday, Tron creator Justin Sun is reassuring consumers there is nothing to panic about. Originally introduced in 2022 as a rival to Terra’s now-dead UST token, the algorithmic stablecoin is now mostly supported by Tron’s native token.
Justin Sun Addresses USDD Bitcoin Withdrawal Concerns
Sun explained why the group in charge of USDD’s collateral, TRON DAO Reserve, withdrew about 12,000 BTC by saying USDD lacked capital efficiency with “a long-term collateralization rate exceeding 300%.”
“Regarding the decentralized stablecoin USDD, its mechanism is similar to MakerDAO’s DAI and is not mysterious. When your collateral exceeds the amount specified by the system (usually between 120%-150% depending on the vault) any collateral holder can withdraw any amount freely without anyone’s approval” Sun said in a statement on the social media platform X.
USDD’s Decentralization and Governance Under Scrutiny
The latest shift in approach raises long-standing issues and problems about the algorithmic stablecoin, especially in relation to Sun’s dominance and decentralization. Starting in 2022, USDD is expected to be run by a DAO; essentially no choices about the stablecoin have been put to a community vote.
X users discovered that rather than the Tron DAO Reserve, Justin Sun’s personal account made the USDD announcement requesting collateral. Moreover, DAO members have only answered one question thus far: whether or not to use burned TRX tokens in May 2023.
Bluechip’s Rating Highlights USDD’s Stability Risks
Bluechip, which bills itself as the “Moody’s of stablecoins,” awarded USDD its lowest stablecoin rating last year, particularly stressing its strong dependency on TRX and lack of openness. The governance structure of USDD is absent. USDD holders are at the mercy of the Tron DAO Reserve; they have no legal or code-based protection, it said in its study.
With around $744 million USDD tokens in circulation, this stablecoin ranks seventh among all the others by market capitalization. With reserves of $1.7 billion worth of TRX and USDT tokens, it boasts a collateralized ratio of over 230%, indicating it is backed by more than twice the total amount of assets in circulation.
Bluechip calculated USDD’s collateralization, however, at merely 53%, partly because the Justin Sun-backed crypto exchange Huobi also claimed to have authority over the address where USDD’s old bitcoin reserves were kept. The research observed that almost all of USDD’s reserves were maintained in a multi-signature instead of a USDD smart contract, so the assets could be moved quite easily.
The tenth-largest cryptocurrency is TRX, with a market capitalization of more than $13 billion. USDD’s DAO noted in a FAQ page published in 2022 that “price swings in TRX do not have a substantial correlation to USDD’s price stability, so every USDD holder is advised to remain rational and not to be misled in the face of market rumors.”
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